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Parity in Mental Health Coverage Required by New Law

(11/10/08) – President Bush recently signed the Mental Health Parity and Addiction Equity Act of 2008.

Many group health plans have cost-sharing and treatment limits on mental health and/or substance abuse coverage that do not exist for medical and surgical treatment. These will not be allowed going forward unless the same design applies to the most common or frequent financial requirements and treatment limitations for substantially all medical and surgical benefits.

Provisions of the Act include:

• New parity standards
• Disclosure requirements
• Cost exemption
• Effective date

For further details about the Act and the implications for plan sponsors, see the Segal Company Bulletin, New Law Requires Parity in Coverage for Mental Health

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Health Care Open Enrollment Trends and Tips

(10/02/08) – Employers are now offering a number of changes in health care plans for 2009 coverage, according to Edward Kaplan, national health practice leader at The Segal Company. These include:

• General moderation in cost-shifting to employees with selective increases.
• Some name brand prescription drugs excluded in favor of generic versions.
• Drug therapy classes tightened.
• Emergency room copays raised by some plan sponsors.
• Walk-in clinics added to covered benefits at modest copays.
• Rules for certain expensive procedures such as bariatric surgery tightened.

Mr. Kaplan suggests that employees take the following actions before finalizing health plan decisions:

• Look at the “What’s New” announcement from your employer or plan sponsor and be sure to review new options to see if they may be a better fit for you.
• Check provider panel of networks offered, make sure there are no surprises.
• Factor in estimated out-of-pocket expenses to fund future flexible spending accounts adequately on pre-tax basis.
• Take advantage of any new incentives that reward participation in wellness programs offered.
• Reassess any life and supplemental coverage options. Overtime needs change and coverage must be updated.
• Ask your pharmacy benefit manager if any of the medications you take will be coming off patent in the near term to take advantage of generic substitution.
• For dual-eligible family members, compare coordination rules between health coverage policies to determine if coordination rules make added coverage less valuable.

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2009 Medicare Premiums, Deductibles and Coinsurance

(10/01/08) – For the first time since 2000, there will be no increase in 2009 in the standard monthly Medicare Part B premium ($96.40) or deductible ($135.00). Other Medicare charges, however, are to rise next year. For example, First-Day Part A Hospital Deductible will rise from $1,024.00 in 2008 to $1,068.00 in 2009.

2009 will be the third year that higher-income Medicare beneficiaries who enroll in the Medicare Part B program will have to pay higher premiums. For instance, couples who file a joint return with income between $170,001 and $214,000 will see their monthly Part B premium rise by 10.4% to $134.90 next year.

For further details, please see the Segal Capital Checkup, "2009 Medicare Premiums, Deductibles, Coinsurance."

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Health Plan Costs and Drivers Are Changing: New Segal Company Survey

(8/19/08) – Rising health care costs are expected to cool off a little next year, according to The Segal Company’s 2009 Health Plan Cost Trend Survey. Increases in health plan per-capita claims costs (“trend”) for medical services and prescription drugs are projected to be less than the increases projected for 2008.

Trend is the projected year-over-year change in health plans’ per-capita medical and Rx claims costs as determined by insurance carriers, managed care organizations, pharmacy benefit managers and third-party administrators. These are the basic costs underlying health care inflation that are captured by The Segal Company in its annual survey.

Among the survey’s major findings:

• For the first time since the Segal trend survey’s inception 12 years ago, Rx drug cost trends are projected to hit single digits and drop below medical plan trends. For example, projected mail-order Rx trend is an increase of 9.4% for 2009 (10.6% in 2008), compared to trend for open-access PPOs of 10.6% in 2009 (10.6 % in 2008).
• Although projected retail prescription drug cost trend has fallen from a high of 19.7% in 2001 to 9.8% for 2009, the trend rate next year for specialty drugs is forecast to be 18.1%, down from the 2008 specialty drug projection of 20.5%.
• Despite some trend deceleration, all medical plan types are expected to see cost trends in 2009 that are at least double the consumer price index for urban consumers and even higher than the annual increase in average weekly earnings, which was 2.8% as of July 2008.
• Price inflation and patient utilization are the two major drivers of hospital, physician and prescription drug trend rates, but the impact of these drivers on trend is uneven. For example, it is projected for 2009 that price inflation will be responsible for a 7.9% hospital trend rate compared to a patient utilization trend rate of 2.5% for hospitals.
• Patient utilization changes are dramatic across hospital, physician and Rx trend rates – all lower in 2009 compared to 2008 trend rates. For example, utilization accounted for a 5.5% physician trend rate in 2008 but a rate of only 4.3% in 2009 for doctors. These lower rates reflect a number of factors including the continued high cost of health care for economically challenged individuals and families. For a fuller presentation of these projections, see the attached special tables on price and utilization data 2008-2009.
• Medical plan trend rates for retirees 65 and older are projected to be lower in 2009 than those for active participants and early retirees.
• Some regional trend differences were found. With respect to combined PPO and POS medical plan trend rates for 2009, Midwest trends are projected to be 9.4% compared to 10.0% for the South, 10.5% for the Northeast and 10.6% for the West.
• Due to lag in health care insurance underwriting cycles, there are variances between trend forecasts and actual observed trends. For example, the projected 2007 trend for open-access PPOs/POS plans was 11.6% and the actual 2007 trend was 8.9%.

For the full report of the 2009 Segal Health Plan Cost Trend Survey, click here.

For a ten-year graph of selected medical, prescription drug and dental trends, click here.

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Want to Buy a Frozen Pension Plan?

(8/14/08) – The IRS has just released a ruling, which states that a company cannot transfer its pension plan to an unrelated corporation without also transferring "significant business assets, operations, or employees.” Under current law, an employer thus cannot cut off its pension obligation by "selling" its plan to an outside investor that does not also take over some part of the business operations, according to the ruling.

The Treasury Department has also issued a statement recommending that the law be changed to allow these transactions, under appropriate conditions and with safeguards for the PBGC and the participants. The statement reports that Departments of Labor and Commerce as well as the PBGC support that recommendation.

In recent years, employers that have frozen their defined benefit pension plans so future benefits do not accrue have been reluctant to terminate these plans formally because of the high cost of purchasing the annuities required to close out the plans. As a result, there has been considerable interest in a possible alternative way to sever a company's connection to its pension plan by "selling" the plan to an investor. In this model, a "financial buyer" would take over formal responsibility for maintaining and funding the plan (and authority to manage its assets) without assuming any part of the original employer's business or employees.

Stewart Lawrence, senior vice president and national retirement practice leader for The Segal Company In New York, observes: “Financial institutions are in the business of making money and will be disposed to invest pension funds aggressively. This may or may not be a good thing for retirees.”

The agencies are recommending consideration of legislation setting out a framework in which transactions in frozen single-employer plans could take place, which would include:

• Notice to the participants and the regulatory agencies, with a requirement of regulatory approval and a limit on how much pension liability any one enterprise could take on in this way.
• A demonstration that a transaction improves the benefit security of the participants and the PBGC.
• The buyers could only be "financially strong entities in well-regulated sectors," which acknowledge their responsibility for funding the plans and meeting all fiduciary and disclosure requirements.
• All of these safeguards will also apply to any subsequent transfer of the plans.
  

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Growing Interest in Public Sector Voluntary Benefits

(7/16/08) – Renewed interest in voluntary employee benefits is growing in public sector organizations, according to Larry Singer, senior vice president and benefits consultant at The Segal Company in New York. These are elective benefits fully paid for by employees or fund participants.

"With tight benefit budgets in the public sector, sponsors realize that if they cannot pay for an employee benefit, the next best thing is providing access to it," observes Howard Goldsmith, vice president and regional public sector business leader at The Segal Company. Access is only meaningful, however, if sponsors provide something of value and the value can be communicated to employees, Singer and Goldsmith point out.

Voluntary benefits are often delivered by third-party vendors and facilitated by public sector sponsors, who like them as a low-cost way to provide additional value to employees. Such benefits cover:

• Critical illnesses such as heart attack, stroke, cancer
• Short-term disability
• Whole life
• Legal services
• Automobile and homeowners
• Dental and vision services
• Protection against identity theft
• Financial planning

Among the changes in voluntary benefits is the use of call centers, face-to-face meetings by vendors to explain their offerings and a new sophistication vendors bring to product design and delivery. Another development is the greater involvement of major vendors such as MetLife and Guardian in offering these kinds of benefits.

Two important voluntary benefit challenges that public sector organizations have to deal with are collection of premiums from benefit participants and compliance with relevant government laws and regulations.

Details on these and other facets of voluntary benefits are contained in Voluntary Benefits: Sweating the Small Stuff, from a recent presentation by Howard Goldsmith and Larry Singer, which includes charts comparing government, individual and employer voluntary benefit programs dealing with ten specific perils, including premature death, disability, legal risks and inflation.

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2008 Segal Medicare Part D Survey of Multiemployer Health Funds

(7/9/08) – Sponsors of multiemployer group health plans that offer retiree prescription drug coverage have a number of options in response to Medicare Part D. The options are listed below, followed by data from The Segal Company’s survey of more than 260 multiemployer health funds in a range of industries and geographic areas:

• Apply for Medicare’s retiree drug subsidy (RDS) for their existing retiree prescription drug plan. More than two-thirds of funds in the survey (68 percent) decided to accept the RDS. This is somewhat lower than the 2007 survey result (72 percent) and the 2006 survey (71 percent).
• Contract with a Medicare Prescription Drug Plan (PDP) or a Medicare Advantage-Prescription Drug (MA-PD) plan. Sixteen percent of multiemployer funds in the survey contracted with a PDP or an MA-PD plan to provide coverage in 2008 that is more generous than coverage offered under the standard Part D benefit. This is a slightly larger percentage than in the 2007 survey (15 percent) and the 2006 survey (7 percent).
• Become a PDP. None of the surveyed funds chose to apply to become a PDP for 2008. This finding is consistent with the two previous surveys.
• Eliminate retiree drug coverage. A very small percentage of the funds in the survey (1 percent) decided to eliminate retiree drug coverage for 2008. This finding is consistent with the 2007 survey.

For further details, please see the 2008 Segal Medicare Part D Survey of Multiemployer Health Funds

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The Segal Company Expands Health Claims Audit Capabilities

(6/10/08) – The Segal Company has announced an agreement with Benefit Informatics to expand electronic claims audit capabilities for clients. Benefit Informatics is a healthcare technology company that provides application services to organizations administering and servicing employee benefit plans.

According to Edward A. Kaplan, Senior Vice President and Segal’s National Health Practice Leader, “This agreement provides our clients with a sophisticated new tool to enable plan sponsors to make sure critical plan features are properly being adjudicated and contract terms are being met. In addition, it provides health plan sponsors with another way to help determine the drivers of costs.”

Philip Kurtz, Benefit Informatics’ President & CEO, added “We are pleased to provide a comprehensive online solution that meets Segal’s audit needs and allows their claims audit professionals to increase efficiency. We look forward to a long and productive relationship with Segal.”

Segal and Benefits Informatics have already worked together with clients to successfully identify the specific health issues that drive increasing health costs.

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Health Plan Impact of California Same-Gender Marriage Ruling

(6/5/08) – On May 15, 2005, the Supreme Court of California handed down a long-awaited decision that same-gender couples must be permitted to marry legally in California.

There is no residency requirement to marry in California. As a result, employers and plan sponsors without a California connection should also be prepared to answer questions about coverage from participants who, after marrying someone of the same gender in California or elsewhere, are likely to expect their same-gender spouses to receive the same benefits opportunities that are available to opposite-gender spouses.

A recent Bulletin from The Segal Company covers the following topics:

• The Defense of Marriage Act
• The ruling’s implications:
  • Optional coverage
  • Required coverage
  • Federal tax issues

Read the Segal Bulletin Health Plan Implications of the California Court Ruling Allowing Same-Gender Marriage"

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2009 Amounts for Health Savings Accounts, HDHPs, Comparison with FSAs, HRAs

(5/21/08) – The Internal Revenue Service has just announced the new 2009 minimums and maximums for Health Savings Accounts (HSAs) and High Deductible Health Plans (HDHPs). The following figures are from The Segal Company’s May 20 Capital Checkup, "2009 Minimums and Maximums for Health Savings Accounts Plans and High-Deductible Health Plans":

America's Health Insurance Plans' most recent annual study of Health Savings Account/High Deductible Health Plan enrollment found that, as of January 2008, about 6.1 million Americans were covered by Health Savings Accounts with High Deductible Health Plans. This is an increase from 4.5 million one year earlier and 3.2 million in January 2006.

Before the Tax Relief and Health Care Act of 2006, contributions to a Health Savings Account were limited to the lesser of the annual deductible under the companion High Deductible Health Plan or the indexed amount. The Act removed the link to the annual High Deductible Health Plan deductible for tax years beginning after December 31, 2006. This higher permissible contribution was expected to increase interest in Health Savings Accounts.

See a comparison of 24 features of Flexible Spending Accounts, Health Reimbursement Arrangements and Health Savings Accounts, from Sibson Consulting, the HR consulting division of The Segal Company.

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2008 Financial Status of Multiemployer Pension Plans

(5/20/08) – Under the funding provisions of the Pension Protection Act of 2006, trustees must review projections of the financial status of multiemployer plans at least annually in order to identify emerging funding challenges so they can be addressed.

If the actuary’s projections reveal an emerging funding problem, a plan will be classified as being in either “endangered status” (colloquially referred to as being in the yellow zone) or “critical status” – that is, in the red zone. If there is no funding problem, a plan is in the green zone.

A survey of 2008 certifications of 230 calendar-year multiemployer pension plans, conducted by The Segal Company, found:

• An overwhelming majority of plans in the green zone: 83 percent
• Only 10 percent of plans in the yellow zone
• Relatively few plans – 7 percent – in the red zone

The survey also found significant industry and size differences in plan financial status, with an average funded percentage for all plans of 97 percent.

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Medical Data Mining Enables Cost Containment, Health Improvement

(4/24/08) – “Clients that are using the latest techniques in medical data mining gain valuable insights into cost drivers and disease burdens within their workforces,” observes Edward Kaplan, senior vice president and national health practice leader at The Segal Company. “This information enables employers to prioritize cost containment and health improvement strategies.”

Among the findings from recent medical data mining for Segal Company and Sibson Consulting clients:

• One employer discovered that approximately 2,000 emergency room visits by employees (30 percent of total) were potentially avoidable.
• Another group discovered that members with diabetes (five percent of the employer’s population) accounted for 22 percent of total prescription drug paid claims in 2007.
• The rate of early cancer screenings such as colonoscopies for several clients was well below targeted rates set by cancer experts and the federal government.
• One employer achieved 67 percent generic dispensing rates at retail pharmacies (highest observed of all cases).
• Forty-one percent of one client’s participants had one or more major chronic health conditions, accounting for 82 percent of all paid claims.
• Patients with cancer from one organization accounted for one percent of the population and ten percent of total paid claims.
• Diabetes, hypertension and coronary artery diseases were the top reported conditions for seven clients based on dollars spent.
• Beta blocker use after a heart attack (one HEDIS quality measure) was high, ranging from 85 percent to 100 percent of targeted patients from three clients.

Eileen Flick, vice president and director of health technology services at The Segal Company, reports that data mining results are being used to modify plan designs, audit disease management vendors and introduce targeted wellness and patient coaching programs.

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Accounting for Public Sector Retiree Health Costs: Five Cases

(4/21/08) – Many public-sector employers are already required to assess and disclose retiree health costs, and the rest are soon to follow. Governmental Accounting Standards Board (GASB) statements prescribe accounting rules for other post-employment benefits (OPEB): health care, dental, vision, legal and other non-pension benefits provided through employers or the plans they sponsor.

“The GASB requirement to report these liabilities has prompted intense scrutiny of the cost and design of retiree health benefits,” says Cathie Eitelberg, senior vice president and national director of The Segal Company’s public sector practice.

Although GASB does not require funding of such retiree benefits, most states and localities are rethinking “pay-as-you-go” funding and considering other financing alternatives, combining potential funding approaches with benefit cost-management strategies.

Alternatives include dynamic redesign, which phases in plan changes over an identified period; creation of a trust or savings account; or elimination of benefits. Several approaches are highlighted in an article by Cathie Eitelberg titled "Public Sector Employees Find Alternative Medicine for Retiree Benefit Liabilities," which appeared in the February 2008 issue of Government Finance Review

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Pension Plan Withdrawal Liability Funded Ratios Improve

(4/10/08) — Employers that withdraw from multiemployer pension plans whose assets fall below the actuarial present value of their vested benefits may incur withdrawal liability if they stop participating or contributing to a plan. The amount of an employer’s withdrawal liability is generally based on its pro rata share of the plan’s unfunded vested benefits as of the end of the plan year preceding the withdrawal.

The steady increase in the average withdrawal liability funded ratio of multiemployer pension plans that began in 2005 has accelerated, according to The Segal Company’s Survey of Withdrawal Liability Funded Ratios. The study covered more than 400 plans representing a wide range of industries across the country and combined assets of almost $152 billion.

Survey highlights follow:

• The average withdrawal liability funded ratio is 84 percent, an increase of three percentage points from the previous survey.
• The percentage of surveyed plans that were 100 percent funded for their vested benefits increased by three percentage pints since the previous survey, from 14 to 17 percent.
• The average withdrawal liability funded ratios increased for plans in all industries except the retail trade and food industry, which remained the same.

For further details, please see the report of the Survey of Withdrawal Liability Funded Ratios.

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Segal Survey: Multiemployer Pension Funding Improvements

(4/4/08) — If actuarial projections reveal an emerging funding problem for multiemployer pensions, a plan will be classified as being in either “endangered status” (colloquially referred to as being in the yellow zone) or “critical status” (nicknamed the red zone).

The Segal Company recently completed a Survey of Multiemployer Pension Plans’ Anticipated Zone Status and Funded Percentage under PPA ’06. The study covered more than 400 plans representing a wide range of industries from across the country and combined assets of almost $152 billion. Key findings include:

• A significant majority of plans are anticipated to be in the green zone. The percentage of green-zone plans (66 percent) is higher than the percentage projected last year (58 percent).
• The percentage of plans anticipated to be in the red zone dropped by almost half compared to last year’s survey. Only 9 percent of plans are anticipated to be in the red zone, which is seven percentage points less than the percentage projected last year (16 percent).
• One-quarter of plans are anticipated to be in the yellow zone.

Going forward, the impact of market volatility on all plans can be mitigated by the use of an actuarial asset-valuation methodology that gradually recognizes market value fluctuations over a number of years.

For further details, please see the full report of the Survey of Multiemployer Pension Plans’ Anticipated Zone Status and Funded Percentage under PPA ’06.

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Recession to Impact Health Plans and Providers

(4/2/08) — “The looming recession could have wide-ranging effects on the health care industry and employer health plans,” observes Edward Kaplan, senior vice president and national health practice leader at The Segal Company.

He sees a labor market that even in a downturn remains challenging for employers, who generally don’t want to burden their employees with more health plan cost increases. “Employers want to hold on to their best talent, and they are ready to battle the major health plans over threatened rate increases,” Kaplan predicts.

Layoffs or increases in cost-shifting could, however, give employees an incentive to flock to medical providers or have existing illnesses defined as disabilities, which could then lead to an increase in long- and short-term disability claims.

“In past recessions, some people would use more medical services, drugs or dental work because they worried about losing their jobs and benefits,” Kaplan says. Now, employees have higher copays and more coinsurance costs, and they often don’t have the necessary income to pay for extra services or drugs. This can give workers a reason not to seek needed care, which could lead to a rise in admissions for expensive, later-stage diseases, he points out.

During the current economic downturn, Kaplan reports that his firm has not seen much increase in health care utilization, as has been the case historically during recessions.

“Health plans and employers should also be on guard for a possible rise in health care provider abuses. When the economy contracts, providers may be ordering additional tests for patients or providing extra services in an effort to boost their revenue,” he says.

Another result of a sustained U.S. recession could be further consolidation in the health care industry as weaker health plans struggle with flat or decreased commercial enrollment, leading larger, stronger firms to consider acquisitions.

Kaplan sees these actions that employers can take in this environment:

• Tighten health plan membership rolls through eligibility audits.
• Monitor employee utilization of health care services via data mining.
• Audit disability and medical provider claims for overlap, waste, inefficiency.
• Negotiate tough with health care providers and insurance carriers.
• Review vendor contracts and interview alternative health care providers.

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Survey of Dental Coverage Reveals Opportunities to Lower Costs and Add Value

(2/27/08) – The Segal Company recently conducted a survey of dental coverage, which reveals there are opportunities to reevaluate dental plan designs in order to lower costs and/or add value to dental coverage.

According to Vincent Graziano, Segal Vice President and Boston Office Health Practice Manager, “Analysis of a health fund’s dental claims and utilization can provide insight into which plan design changes are most likely to yield savings. In addition, dental plan disease prevention measures may identify potentially costly medical conditions early enough for individuals to take action.”

Graziano also points out: “A possible source of savings are dental vendor claim-paying fees. These fees have dropped over the years in response to competition and increased automation, which means that dental vendor requests for proposals can sometimes help to secure lower fees for dental claim adjudication services and dental network leasing services.”

The survey notes that dental plan sponsors should consider the following strategies:

• Review covered procedures, exclusions and limitations.
• Implement network plans (i.e., dental maintenance organizations or dental provider organizations).
• Arrange for leasing an insurance company’s dental network.
• Convert insured plans to self-insured plans.
• Update schedules and price dental plan design changes.

For further details, please see the report presenting survey results, completed in late 2007, which reports information for 340 group health plans.

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New Federal Guidance Affects Wellness Programs

(2/08/08) – New U.S. Department of Labor (DOL) requirements must be met for wellness program benefits to qualify as supplemental excepted benefits under the Health Insurance Portability and Accountability Act (HIPAA).

One type of excepted benefit is supplemental health coverage that reimburses employees for coinsurance or deductibles related to meeting health status objectives, but these must comply with HIPAA wellness rules regarding nondiscrimination. For example, insurance that provides credits toward a plan deductible for meeting blood pressure or cholesterol objectives must provide a reasonable alternative for employees who for medical reasons cannot meet the health objectives or even attempt to do so.

For further details about the new guidance affecting health plans offering wellness programs, please see the Segal Bulletin "New Guidance Affecting Health Plans Offering Wellness Programs."

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State, Local Governments Face Worker Dissatisfaction, Staffing Crisis

(2/5/08) – The Partnership for Public Service has just announced a program for filling critical positions in the federal government with IBM employees, and a similar staffing crisis is developing in state and local governments that needs to be confronted if public services directly affecting citizens are not to suffer.

Baby boomers in the federal, state and local public sector are starting to retire in large numbers, the pool of highly skilled workers is shrinking and government employers are being challenged to brand themselves as employers of choice for younger employees. Succession planning to bridge these gaps is becoming increasingly important as government organizations seek to retain as well as recruit desired talent.

A recent survey by The Segal Company found that state and local public sector employees under age 40 tend to focus more on their government career (job security, opportunities, training) and are more likely to actively look for work elsewhere in the next year compared to government workers 40 and older.

According to Elliot Susseles, senior vice president at The Segal Company, “The study found that the biggest driver of turnover for employees under 40 is dissatisfaction with career opportunities and job content. This suggests the importance of establishing and communicating career path opportunities, work development and interesting work assignments to successfully recruit and retain younger employees.”

In two other key elements of work rewards, the survey found that both age groups have similar concerns about pay and benefits. As has been traditional in government service, pay continues to be less important than benefits for all employees regardless of age. Satisfaction levels with pay as well as with career are nevertheless low for both workers under and over 40. These findings also reflect the challenge of attracting and keeping new talent in state and local public service.

The table below indicates in detail how important and satisfactory public sector employees consider these three salient rewards of their work:

The survey report from The Segal Company has detailed findings about various aspects of respondents’ jobs and satisfaction ratings for specific aspects of pay, benefits, job content, career and affiliation with employer. The findings are based on responses from 1,918 individuals employed by states, counties, municipalities and public authorities throughout the U.S. in 2007.